Continue with OREA Agency explanation |
A REALTOR will be pleased to discuss his or her agency relationship and responsibilities with you. If you need clarification about the types of agency relationship available, ask the REALTOR to explain your alternatives.
An agency relationship is created where one person, known as the principal, asks another person, known as the agent, to act for and on the behalf of the principal. The principal will define the nature and extent of the agency relationship; in other words, what the agent is being asked to do. In real estate transactions, agency relationships are created when vendors or purchasers ask REALTORS to act on their behalf in real estate transactions.
As a matter of law, an agent who represents a principal owes that principal the highest duty of "utmost good faith"; the agent must represent the principal's best interests at all times. The agent owes his principal a duty of confidentiality regarding information about the principal.
In most cases, there are two parties in a real estate transaction;
a vendor who owns a property and who wants to sell it, and a purchaser who
wants to buy a property.
The job of REALTORS is to bring together willing vendors and willing purchasers
in successful real estate transactions.
The Toronto Real Estate Board is an association of REALTORS. The Toronto Real Estate Board operates an MLS System; this System is a mechanism whereby vendors, through their agent (known as a Listing Broker), can make known the fact to other REALTORS that a particular property is for sale. By placing a property on the MLS System, the Listing Broker (agent of the vendor) lets it be known to every other REALTOR that they can be a "Co-operating Broker".
As noted, a vendor usually engages a REALTOR to act on its behalf
in the sale of a property; this REALTOR is known as the Listing Broker. The
vendor and the Listing Broker will enter into an MLS Listing Agreement whereby
the agency of the Listing Broker is confirmed, and the vendor agrees to compensate
the Listing Broker for its efforts. This compensation is usually called commission,
and usually takes the form of a fee or payment from the vendor of the real
property upon successful completion of the real estate transaction. By placing
a property on the MLS system, the Listing Broker, in its offer to all other
Co-operating Brokers to bring a purchaser, offers to share the commission
the Listing Broker is being paid by the vendor.
Thus, for a vendor, the key to the MLS System is that the vendor's agent,
being the Listing Broker, has placed the vendor's property on the MLS System
and so made an invitation to all Co-operating Brokers to bring a purchasers
offer acceptable to the vendor, and thereby become entitled to a portion of
the commission which the vendor has agreed to pay.
Just as with the vendor, the purchaser of real estate will often
engage a REALTOR in connection with a real estate transaction. However, it
is important to understand that by contacting a REALTOR, it does not necessarily
mean that the purchaser has established an agency relationship with that REALTOR.
There are several usual types of relationships which may exist between a purchaser
and REALTOR (the "Co-operating Broker") in a real estate transaction;
These are the usual forms of agency relationships; this is not
to say there may not be others.
Where a REALTOR is acting as sub-agent of the vendor, it is important for
purchasers to realize that the REALTOR is technically an agent of the vendor
so that duties are owed by the REALTOR to that vendor. However, the purchaser
can expect the REALTOR to disclose all pertinent information about a property,
not to misrepresent any facts, and to honestly answer all questions about
the property. This has been a usual form of relationship for many years in
the real estate industry.
When a REALTOR acts as Buyer Broker (whether paid by the purchaser directly
or through the Listing Broker), the purchaser can expect the REALTOR to act
in the purchaser's interest alone as there is no sub-agency relationship with
the vendor. In the case of buyer brokerage, the relationship is typically
established by a Purchaser's Agency Agreement, and the REALTOR is clearly
only the agent of the purchaser.
It may be on a particular transaction involving real estate
that both the vendor and purchaser are represented by the same Firm. This
is known as dual agency.
In dual agency, there is effectively only one agent, or Firm, in a situation
where there are two principals. In this case, duties to principals can become
conflicting given that one agent is acting for more than one principal.
When REALTORS seek a Listing Agreement from a vendor, or REALTORS seek confirmation
of agency relationships from a purchaser, it will be normal for the REALTOR
to ask the party signing the agreement to acknowledge that dual agency may
occur, and that conflicts and duty of confidentiality are waived.
At the earliest practical point in time, in an offer regarding real property, and from time to time if the agency relationship changes, REALTORS are required to disclose to other REALTORS the nature of their agency relationship.
As noted, by placing a property on the MLS System, the Listing Broker (agent of the vendor) lets its be known to every REALTOR the offer to become a Co-operating Broker, and that the Listing Broker is offering to share the commission that the vendor has agreed to pay the Listing Broker. Where a Co-operating Broker acts as a sub-agent of the vendor, the REALTOR will be paid through the Listing Broker and the purchaser will not have to pay anything directly to the REALTOR. However, where the purchaser enters into a Purchaser's Agency Agreement with a REALTOR as a Buyer Broker (the REALTOR is only agent of the purchaser), the purchaser will either compensate the REALTOR directly, or direct that the REALTOR is to compensated through the Listing Broker.
It is up to all vendors and purchasers to discuss openly and freely with REALTORS agency, agency relationships, the type of agency relationship desired and the best approach to compensation for REALTORS. All REALTORS are dedicated to acting for vendors and purchasers, and the efficient working of organized real estate. All REALTORS are ready and able at all times to answer all questions and inquiries.
For a simpler explanation see Working with a Realtor published by the Ontario Real Estate Association.
The Canadian Real Estate Association website has excellent information too, see here.
Continue with OREA Agency explanation |
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